The Renewable Leap: Powering the Middle East & North Africa

North Africa and the Middle East are quickly becoming renewable investment hotspots, as investors seek the next profitable opportunity to invest their capital. Bloomberg New Energy Finance’s Future of Energy Summit highlighted that generation capacity is expected to expand 162% to meet power demand in these regions by 2040. While fossil fuels played a dominant role in power generation in the region in the past, accounting for more than 80% of total installed capacity, renewables will likely be the future as they grab a majority share. Mounting international pressure to combat climate change and the falling costs of renewables is making clean energy investments in the region more attractive than ever before.

One of those renewables falling in price is solar. It doesn’t hurt that North Africa and the Middle East are two incredibly sunny regions. BNEF expects these best-in-class solar resources to play a larger role in the regional power system by 2040 to account for a third of installed capacity – up from 1% today. More specifically, utility-scale solar will dominate capacity additions, accounting for a third of all new generating capacity, more than coal, oil and natural gas. Wind power won’t be forgotten about either, as it is expected to grow by a 26-fold increase – from about 7GW in 2015 to 187 GW in 2040. Lastly, the region is one of the few to potentially see some new solar thermal projects with the potential to bring 10GW online over the same period.

However, a clean energy future for North Africa and the Middle East cannot be realized without overcoming hurdles. Effective regulatory policies that incentivize growth will be key to keeping capital costs low and renewable installations growing. BNEF reports that solar gained success in African markets through competitive bidding, while feed-in-tariffs are still common for the smaller solar projects. Although, low retail power prices in the region hurt the popularity of net metering, meaning this policy tool has not been as effective incentivizing renewable’s growth as in has in the West.

There are other structural problems with these markets. For example, a clear project pipeline supported by supply data visibility is a must. Some developers struggle to find bankable deals and those they do find are sometimes unworkable. Additionally, even the most experienced developers sometimes tussle for defined property rights or are scared away by unstable currencies.

The Economist reported on Africa in the summer of 2015 calling it the “leapfrog continent,” since the region has the potential to skip the dirty energy revolution experienced by the West. Power poverty is still an incredible problem as millions go without electricity daily. New energy projects cannot come fast enough. Power shortages slow economic growth, hinder educational opportunities and handicap efforts to improve healthcare. There is an opportunity with North African and the Middle East to leapfrog dirty energy to create a richer and greener region that is powered by clean energy.

While the opportunities in these regions are great, the said challenges should not deter developers, who can increase their chances of being profitable if they do their diligence. Maintaining data integrity is crucial for keeping a healthy pipeline, which will help developers mitigate risk as well as stay abreast of imposing ones. Having a digital system to manage the project investment lifecycle, housing all project data, past and present, in one place will help ensure this. Because while expanding into new regions can be intimidating, modern technology now helps turn these new opportunities into realities.